Argo Tea Links Up With Billionaire Family's Coffee Empire

Caribou Coffee is investing in Argo Tea Inc. through a licensing pact that’s paving the way for co-branded stores, part of JAB Holding Co.’s efforts to assemble a vast beverage empire, according to people familiar with the matter.

JAB is planning to open 40 cafes next year that feature its Caribou Coffee and Einstein Bros. Bagels brands alongside Argo Tea, said one of the people, who asked not to be identified because the agreement isn’t public. A handful of early tri-branded locations are already open in the Minneapolis area, Caribou’s home base. The licensing payment could be converted into equity in the future, giving JAB a stake in Argo, the person said.

The move would thrust JAB deeper into the tea business after years of acquiring some of America’s best-known coffee, bagel and doughnut brands. The holding company, backed by Austria’s billionaire Reimann family, owns Keurig Green Mountain, Einstein Noah Restaurant Group, Peet’s Coffee & Tea and Espresso House, among other brands. And JAB spent about $1.35 billion earlier this year to buy Krispy Kreme Doughnuts Inc.

Starbucks’ Tea Push

Argo gives JAB access to a more health-conscious tea brand, bringing the company more ammunition as it challenges Starbucks Corp. for U.S. cafe customers. Argo has its own chain of stores and sells bottled tea at grocery stores, including Whole Foods Market Inc.

Starbucks has been making its own push to sell more tea since acquiring Teavana Holdings about four years ago. Seattle-based Starbucks has been advertising shaken iced teas in its cafes and next year will begin selling bottled Teavana in thousands of U.S. retail stores.

Tea is becoming more popular in the U.S., where more than half of the population drinks it on any given day, according to the Tea Association of the USA. Sales last year increased 6.1 percent to about $11.5 billion, with bottled and specialty teas seeing the highest growth rates.

Argo was founded in 2003 by Arsen Avakian as a shop in Chicago’s tony Lincoln Park neighborhood. Since then, it has expanded to more than 50 locations, including New York and Boston. Argo also has stores in the Middle East. Company sales are close to $50 million a year, with more than half of that coming from the bottled-drink business, according to Avakian.

Gunning for Coke

Along with selling tea, Argo offers pastries, panini sandwiches, vegan salads and Illycaffe coffee. Last year, the chain added a line of milk-based Teappuccino bottled drinks infused with loose-leaf teas.

“We are going to come after those Cokes and Pepsis,” Avakian said in August. “We are the real beverage innovators.”

JAB, run by a trio of Reimann advisers, has already been developing co-branded stores, aiming to spotlight its portfolio of food and drink names. It has a chain of shops called Coffee & Bagels that tout Caribou coffee and Einstein bagels. There are more than 50 of the cafes either open or in the works, with about 20 in Minnesota.

JAB also is consolidating Krispy Kreme’s operations. This week, the firm agreed to acquire the doughnut brand’s U.K. business from a private equity owner. The deal will help JAB “tidy up” its portfolio, according to Jeffrey Young, the head of research firm Allegra Group.